Friday, March 30, 2012

But despite the lackluster environment, the top managers still took home $14.4 billion in 2011.

Even when returns suffer, the largest hedge funds can collect big paychecks, thanks to the fees they charge pensions, endowments and wealthy individuals to manage money.

Paul Tudor Jones II charges a 4 percent management fee and takes 23 percent of any profit. So he made $175 million in 2011, although his main fund tracked the returns of the Standard & Poor’s 500-stock index. Steven A. Cohen, whose firm, SAC Capital Advisors, keeps 50 percent of the profit, earned $585 million.

“The industry’s fees and performance are so out of whack it’s unbelievable,” said Bradley H. Alford, who invested in hedge funds while he was at the Duke Endowment in the late 1990s but today oversees a lower cost mutual fund firm that competes with them. “Fifteen years ago, you got double-digit performance for those returns, but last year, the S.& P. was positive and hedge funds were negative. There’s no alignment with the fees.”

I'm sure that's nothing a little more free market magic won't fix if only we get rid of those pesky regulations hampering their success. Remember Rand Paul:

Instead of punishing them, you should want to encourage them. I would think you would want to say to the oil companies, “What obstacles are there to you making more money?” And hiring more people. Instead they say, “No, we must punish them. We must tax them more to make things fair.” This whole thing about fairness is so misguided and gotten out of hand...

“We as a society need to glorify those who make a profit,” Paul concluded.